Forex trading involves a lot of things other than just opening and closing orders. Traders find themselves having to choose between different trading strategies. Most of the trading strategies depend on the use of technical indicators, fundamental analysis, technical analysis and price action.
The most popular strategies are based upon the price action. Price action is simply the movement of the market price. When we talk of the ‘action’ we refer to the manner in which the market prices vary. A trader that uses price action strategies will be targeting to study the market so as to make subjective decisions on trading with respect to the current and definite price movements.
The trader observes the relative size, shape, position, growth and volume of the bars on an open-high-low-close chart bar or candlestick chart, starting as simple as with a single bar, but most often combined with chart formations found in broader technical analysis such as moving averages, trend lines or trading ranges.
The best traders for price action trading
Use of price action is best suited for the retail traders, speculators, arbitrageurs and trading corporations that hire traders. Therefore this is useful as long as you are a trader regardless of the kind of a trader you are; whether an intraday trader, a scalper, a long term trader or a short term trader.
What do traders use in price action trading?
The tools and patterns that the traders can use vary from simple price bars, price bands, break-outs, trend-lines, or complex combinations involving candlesticks, volatility and channels.
Psychological and behavioral analyses and ulterior actions, as set by the trader, additionally form up a vital side of value action trades. For example, regardless of what happens, if a stock swinging at 1.9998 crosses the personally set psychological level of 2.0000, then the trader could assume an extra upward move to require a protracted position. Different traders could have opposite interpretations once the 2.00000 level is hit. One trader may assume there is a price reversal and therefore takes a shorter term position.
Another traders still in the same market and trading the same currency pair can interpret it in another totally different manner. Therefore it is evident that the traders can have different interpretations, outlined rules and completely different activity understanding of the same market. This is different from the use of the rest of the trading strategies which would see the traders interpret the market in a similar manner.
There are specific things that the Forex traders should understand before getting into using the price action trading. These essentials include:
There are dozens of price patterns that are represented by bar and candlestick patterns. Given the right market situation, these patterns provide potential trading opportunities and are referred to as trading setups.
Some of the most important bar or candlestick patterns are:
These are bars that have a longer tail than the body. Mainly this will happen when the market is struggling to move but there are other forces that are forcing the prices in the opposite direction. So the price will for example rise during candle formation, but will then be brought down leading to the formation of a bar with a long tail and a short body.
Hikkake Trade Setup
This is used to take advantage of the false breakouts using pending orders. There are different Hikkake Trade Setups for selling and for buying.
For you to use the Hikkake Trade Setup to open a long position, there have to be an inside bar, the next bar should have a lower high and lower low. Then a buy pending order is placed at the high of the original inside bar for the next three bars and the order should be canceled if not triggered after three bars.
For you to use the Hikkake Trade Setup to open a short position, look for an inside bar, then the next bar has a higher high and higher low. Then a sell is placed at the low of the original inside bar for the next three bars and closed if not triggered after three bars.
The Forex Market prices move in swings. Price action trading interprets higher highs and higher lows as an uptrend, and lower highs and lower lows as a downtrend.
One of the distinguished theory on this kind of behavior of market swings is the Elliot Wave Theory which postulates an eight-wave pat